Mortgage Attributes

Mortgage
A conditional conveyance of property as security for the payment of a debt or the fulfillment of some obligation.  Upon payment of the debt or performance of the obligation the mortgage becomes void.

Borrower (Mortgagor)
An individual (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay the principal along with interest.  Each additional borrower contributes income and credit history to the qualification process of a loan and whose names appear on all closing documents.  Each additional borrower is liable for the debt and condition of the property.

NOTE
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time which is secured by the mortgage or trust deed.  The NOTE clarifies terms and conditions of financing i.e. prepayment penalties, adjustment periods, loan amount, interest rate, payment instructions, etc.

Deed
A legal instrument in writing, duly executed and delivered, whereby the owner of real property (grantor) conveys to another (grantee) some right, title or interest in or to real estate.

Deed of Trust (or Mortgage) (used in Colorado)
An instrument used in many states in place of a mortgage.  The property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and re-conveyed upon payment in full.

Quitclaim Deed
When two or more co-owners want to end their ownership rights in a piece of property, this type of transfer of title can take place by means of a Quitclaim deed. The co-owner will sign over his rights and title in the Quitclaim deed, and recorded in the County Recorder's office.  An exchange of money may/may not take place.  A Quitclaim deed gives no warranties as to the condition of title at the time of the transfer.

Title
A document declaring evidence of property ownership that is issued at closing.  A new Title is issued after refinancing, as proof of the loan transaction.  The Title includes the loan number(s), loan details, legal property description, liens, encumbrances, and other information related to the property.  A Title may be acquired through purchase, inheritance, devise, gift or through foreclosure of a mortgage.

Warranty Deed
Often called a general warranty deed; a deed in which the grantor warrants or guarantees the title to real property against defects existing before the grantor acquired title or arising during the grantor's ownership.

Homeowner's Warranty
A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Real Property - Land and anything permanently affixed to the land, such as fences, buildings, and those things attached to the buildings, such as light fixtures or plumbing. May refer to rights in real property as well as the property itself.

Principal, Interest, Taxes and Insurance (PITI) - Also called monthly housing expense Mortgage Payment
The monthly mortgage payment is the amount applied toward the loan balance (principle), accrued interest, escrow account (taxes), and hazard coverage (insurance).  

·        Principal - is the outstanding balance due on a debt, excluding any accrued interest or other fees.

·        Interest - the rate charged against the loan amount typically collected on a daily basis (i.e. if a mortgage is refinanced in the middle of the month, the amount of interest due is calculated for the days - from last payment to the day of funding), with the exception of FHA which calculates interest by a whole month (i.e. if a mortgage is refinanced in the middle of the month, then no interest is charged for any part of that month).

·        Tax (Property Taxes) - Assessed by the county to be paid in 1 (one) or with 2 (two) payments per year.  Property taxes are also called real-estate taxes (paid to the local taxing authority or municipality).  Property taxes are often levied as a percentage of the home's assessed value.

·        Insurance (Hazard Insurance) -  Protects the insured (homeowner) from specified losses, such as fire, hail damage, etc.  Federal law states that if a home's hazard insurance is canceled for any reason, that the insurance company must immediately inform the lender that the policy has been canceled.  Yearly payments are typically divided into monthly payments that are collected as part of the mortgage payment.

Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor's default on a mortgage.  Mortgage Insurance is generally required on all First Mortgage Loans that have a down payment of less than 20% of the purchase price (or until 20% equity is accumulated in the property). 

Types of Mortgage Insurance:

1. Mortgage Insurance Premium (MIP) - MIP is paid on government-insured FHA loans only  
2. Private Mortgage Insurance (PMI) - PMI is paid on non-government-insured loans
3. VA funding fee - One time funding fee in lieu of mortgage insurance

Homeowner's Insurance (property insurance)

A policy that combines liability coverage and hazard insurance to protect the homeowner from weather-related damage, as well as potential liability from events that occur on the property.  Lenders require homeowners insurance coverage to protect the collateral that secures their loan.  Some homeowners insurance policies do not cover catastrophic events such as tornadoes, hurricanes or floods.  These kinds of events generally require a separate insurance policy.

Note: A Condo Owner only insures their personal living area property within their walls.  The exterior walls and grounds are owned by the HOA

Home Owners Association (HOA) fees

Typically, a monthly fee charged to the homeowner by their neighborhood association to provide services in their immediate housing community.  Townhomes charge this fee to compensate for grounds keeping, external maintenance, and facility upkeep, including gym and equipment, swimming pool, etc. 

Escrow
In real estate, it is the state or condition of a deed which is conditionally held by a third party, called the escrow agent, pending the performance or fulfillment of some act or condition. 

Escrow Account
Any identified checking, demand, passbook or statement account insured by an agency of the United States government maintained in a Colorado Depository for money that belongs to others.  Because most customers are unable to pay their taxes or insurance as one lump sum every year, most lenders set up an escrow account.  This account takes the sum of all taxes and insurance, divides it by 12 payments to add that amount onto the base payment of the loan.  Lenders usually buffer FHA & Conventional the Escrow Account as follows:

CA, MT, ND, NV No cushion, VT 1 month cushion, All other states 2 months cushion
No cushion is collected on VA loans or for FHA MIP or for conventional mortgage insurance.

Escrow Agreement
A written agreement between two or more parties whereby the grantor, promisor or obligor delivers certain instruments or property into the hands of a third party, the escrow agent, to be held by said third party until the happening of a contingency or performance of a condition, and then to be delivered to the grantee, promisee or obligee.

Escrow Overage or shortage
The difference, determined by escrow analysis, between escrow funds on deposit and escrow funds required, to make a payment when it becomes due.

Escrow Reserve / Impound Requirements
Escrow reserves or impounds are required, subject to applicable state law. 
Typically, a waiver of this requirement may be considered for a loan if all of the following apply:

·        The LTV does not exceed 80%.

·         The loan is conventional

·        The property is the borrower's primary residence.

·        If the loan is a purchase, the borrower is not a first-time homebuyer.

·        If a refinance loan,  real estate taxes are not delinquent.  AND, at least one of the following is also required:

o            The borrower has shown a strong ability to save.

o            Debt-to-income ratios do not exceed standard guidelines.

o            The borrower currently has a non-escrow loan and has maintained an excellent mortgage

NOTE: Underwriting makes final approval or disapproval of Escrows

·        Waiver of flood insurance escrow is permitted only if all other escrow items are waived.

·        Escrow reserves/impounds cannot be waived on FHA or VA loans. 

·        Some conventional loan programs do not allow waiver of escrow reserves/impounds. 

Escrow Kicker
...see Mezzanine Loans ...for Commercial Mortgage Loan Financing